Limited Arbitrage in Mergers and Acquisitions

  title={Limited Arbitrage in Mergers and Acquisitions},
  author={M. Baker and Serkan Savasoglu},
  journal={Journal of Financial Economics},
  • M. Baker, Serkan Savasoglu
  • Published 2000
  • Economics, Business
  • Journal of Financial Economics
  • A diversified portfolio of risk arbitrage positions produces an abnormal return of 0.6% to 0.9% per month over the period from 1981 to 1996. We trace these profits to practical limits on risk arbitrage. In our model of risk arbitrage, arbitrageurs? risk-bearing capacity is constrained by deal completion risk and the size of the position they hold. Consistent with this model, we document that the returns to risk arbitrage increase in an ex ante measure of completion risk and target size. We also… CONTINUE READING
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